### U.S. Treasury Yields Decline as Fed Signals Limited Rate Cuts

In early trading on Tuesday, U.S. Treasury yields experienced a modest decline following an announcement from the Federal Reserve indicating expectations for merely one rate cut in 2025. Specifically, the yield on the 30-year Treasury decreased by nearly 3 basis points, reversing an upward spike that saw it briefly surpass 5% on Monday. The 10-year Treasury yield fell by 2 basis points to reach 4.455% as of 1:50 a.m. ET, while the 2-year Treasury yield dipped slightly over 1 basis point to 3.97%. In the bond market, purposes, a basis point represents 0.01%, and it is noteworthy that bond prices and yields move inversely.

Friday saw Moody's Ratings downgrade the credit rating of the United States from Aaa to Aa1. This move places Moody's in alignment with S&P Global Ratings and Fitch, who had previously downgraded the U.S. credit rating in 2011 and 2023, respectively. According to Vishnu Varathan, head of macro research at Mizuho Securities, although the downgrade is "significantly dire," it is "inconsequential" to the broader markets. Varathan emphasized that this adjustment in rating is unlikely to trigger a forced liquidation or major market upheaval since U.S. Treasurys retain their liquidity and collateral value.

The backdrop of this development includes a surge in U.S. Treasury yields last April following the introduction of broad "reciprocal tariffs" by then-President Donald Trump, targeting foreign trade partners. Concerns about potential financial instability and increased consumer borrowing costs led to a scaling back of these aggressive tariffs. Adding another layer of complexity, Atlanta Federal Reserve President Raphael Bostic stated on Monday that he supports only one interest rate cut this year. Bostic's perspective aims to balance the dual challenges of containing inflation risk while avoiding an economic downturn.

Lastly, the Federal Reserve's projections from March initially signaled two 25-basis-point cuts in 2025. However, Bostic pointed out that the impact of tariffs has been more pronounced than anticipated, influencing his stance on the rate cuts. This updated outlook from the Federal Reserve comes amid ongoing efforts to navigate the complex dynamics of economic recovery and inflation control.